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Tesla Reports Third-Quarter Profit That Beats Market Expectations (cnbc.com)
Rei writes: When Tesla announced late last year that it was targeting sustained profitability in the second half of 2018, reaffirming this target throughout the year, the markets reacted with skepticism. Indeed, despite repeated insistence that the company had no need for a capital round, news analysts have treated the concept of Tesla dilution to raise more capital as inevitable and urgent to pay off convertible bonds next spring, even suggesting insidious theories that the reason it hadn't was that it "couldn't."
Well, today Tesla put the doubts to rest with a blockbuster Q3 report -- not simply eking out a profit and small free cash flow growth, but $2.92 per-share profit and $881 million free cash flow -- almost raising the entire value of their convertible bond debt in a single quarter. While many were skeptical about Tesla's claims that it would go from near zero profit margin on Model 3s to their claimed target of 15%, Tesla instead hit a 20% margin on the Model 3 (now the highest-revenue car in the U.S.), with a 25.8% overall automotive gross margin. This was all achieved with only $52 million worth of zero-emission vehicle credits claimed this quarter. While Tesla bears will likely claim that this quarter was a one-off that won't be repeated, Tesla reiterates guidance for sustained profitability from herein, barring a force majeure event.
Well, today Tesla put the doubts to rest with a blockbuster Q3 report -- not simply eking out a profit and small free cash flow growth, but $2.92 per-share profit and $881 million free cash flow -- almost raising the entire value of their convertible bond debt in a single quarter. While many were skeptical about Tesla's claims that it would go from near zero profit margin on Model 3s to their claimed target of 15%, Tesla instead hit a 20% margin on the Model 3 (now the highest-revenue car in the U.S.), with a 25.8% overall automotive gross margin. This was all achieved with only $52 million worth of zero-emission vehicle credits claimed this quarter. While Tesla bears will likely claim that this quarter was a one-off that won't be repeated, Tesla reiterates guidance for sustained profitability from herein, barring a force majeure event.
Not so. They report bot produced and delivered cars. Just take a look at the report to understand the company financials. It's much more intelligent than just talking out of your ass:
The Latest 10-q
The Update Letter
Both of those documents are SEC filed.
M3 deliveries were about 2,5k higher than production this quarter, vs. 56k deliveries. S+X was almost identical to production. Given that the automotive margin is over 25%.... no, that was not a material factor. Furthermore: Inventory in Q3: $3,31B. Inventory in Q2: $3,32B. The given the higher ASP in Q3, undelivered inventory is more valuable than undelivered inventory in Q2.
"What is the difference between a Ponzi Scheme and an Investment Bank?" -- Jon Stewart
Model 3 was ranked "Average" in reliability by Consumer Reports. For a first model year vehicle, that's not bad at all. It retains a "recommended" rating from CR. S was downgraded because they switched to making air suspension standard, and there were some air suspension reliability issues (which Tesla states their supplier has fixed).
"What is the difference between a Ponzi Scheme and an Investment Bank?" -- Jon Stewart
Standard short conspiracy theories.
1) Tesla only delivered about 2 1/2 thousand more vehicles than they produced this quarter (due to issues related to timing the tax credit expiry). Doesn't even remotely come close to the profit this quarter. Furthermore, they were lower ASP vehicles than the ones held up in delivery delays this quarter.
2) Tesla, like all companies, has had varying disputes with suppliers. The grand total in Q3 was, if I recall correctly, around $8m. I mean, stop the presses.
3) Tesla's loaner fleet is still very much intact. It periodically sells off older vehicles and replaces them with newer ones.
4) "They haven't made a profit" - Hmm, what's that river in Egypt....
5) "They will lose money when their debt payments come due" - Yeah, they made that much free cash this quarter alone.
"What is the difference between a Ponzi Scheme and an Investment Bank?" -- Jon Stewart
False. Tesla has $157M due in December, and another $920M due in March.
Meanwhile, production keeps rising. If you're betting on a "Christmas slowdown" to save you, keep dreaming.
This is only just starting. Fremont scales to at least 7k without new lines (confirmed not just by Tesla, but also analysts who've toured Fremont). Model 3 is designed for 25% margin at its full range of variants. I mean, what exactly did you all think would happen to margin over time? Shorts kept complaining about high scrap rates and excess labour requirements - did you think it would remain that way forever? It takes a long time to get those things down (Tesla is still slowly reducing production costs on the Model S), and reducing them equals margin. With the introduction of the MR, margin improvements will get eaten up by a lower ASP in Q4, but in Q1 you not only get further margin improvements, but also a higher ASP due to the start of high-end sales in Europe.
Seriously, what exactly did you all expect was going to happen?
"What is the difference between a Ponzi Scheme and an Investment Bank?" -- Jon Stewart
Your point was that they were not following GAAP accounting. Had you taken my advice and read the report I conveniently linked to you, you would have seen the very first sentence : Q2 Automotive gross margin increased to 20.6% GAAP and 21.0% non-GAAP.
Thats their profit margin. Also, FYI, you book revenue when you ship, not produce. So having 13k vehicles in inventory is a drag on their balance sheet, not a boost.
Not any longer.
Bruce Perens.
You're forgetting about the carpool sticker laws that were recently introduced. For cars bought beginning this year, the expiration date for California carpool stickers will be on January 1st of the fourth year after you obtain the stickers.
In terms of maximizing the benefits of that sticker, that means the optimal time to take delivery is December, so that you will get your license plate by early January and can apply for stickers at the start of the new year, thus giving you almost four years of carpool lane use without having to wait until the next calendar year to apply.
Check out my sci-fi/humor trilogy at PatriotsBooks.
I'm waiting to hear how Tesla is losing money on each car it sells, such as some people have been saying around here (FALSELY) for months.
Tesla HAS been losing money on each car they sell. That is a factual statement. But it doesn't mean what some people think it means. People here keep confusing gross margin with net margin and haven't a clue what free cash flow is or fixed costs or variable costs.
It's absolutely normal for a new product to lose money on the first units they produce because they haven't produced enough units to amortize the fixed costs over. Here's a oversimplified totally-made-up example. I spend $1,000,000 making an assembly line - one time cost never to be repeated. It also costs $500,000 per year to operate the assembly line no matter how many units I make whether it be 1 or 100,000. So before I make a single unit I have $1.5 million in operating costs. Let's say I'm selling a car for $50,000 and my actual cost of labor and materials in that car is $40,000 so I have a gross profit of $10,000 per vehicle. That means the first 150 vehicles I make are going to be sold at a loss. I also have to sell a minimum of 50 vehicles every year just to cover the fixed costs of operation.
Tesla is in that exact situation, just with much larger numbers. The have the added wrinkle that they also have a lot of debt to service (around $11 billion reportedly) which can be treated as an additional fixed cost.
It's not just gas savings, though they are likely the most significant part of any savings once you switch to EV. It's other costs like no more engine, transmission fluid changes and even less wear and tear on brakes.
I went from spending around $600-$700 a month on gas to spending around $50 with my PHEV. I haven't changed my driving habit or route, it's literally the cost savings just in gas . The oil changes in my PHEV are every 10,000km or 6 months. I have yet to hit 10,000km on the gas engine yet - I'm at 36,000km in just over a year of ownership and the mileage on the gas engine is less than 9,000km. The gas engine still kicks on periodically (even when the battery is fully charged) because I think it's programmed to cycle the oil etc. every now and then.
Things Tesla owners have to worry about:
- Brakes (although less frequently due to regenerative braking)
- Battery pack (warrantied for 7 years minimum I believe)
Things Tesla owners don't have to worry about
- Engine oil & leaks
- Transmission fluid & leaks
- Power steering & leaks
- Engine coolant & leaks
- U-joints
- Exhaust pipe corroding
- Catalytic converter replacement
- Spark plugs and wires
- Camshafts, lifters, valves and anything else in a combustion engine
The list goes on and on.